Currency held by the public $180 billion Total Checkable Deposits-$720 billion T

Question

Currency held by the public $180 billion Total Checkable Deposits-$720 billion Total Bank Reserves $185 billion Required Reserve Ratio- 25 percent billion. 1. Currently, the M1 money supply is equal to $.IoO 2. Required Reserves (for all banks combined) equal S 3. Excess Reserves (for all banks combined) equal S 4. The simple deposit multiplier is equal to oea t parts Assume that maximu billion. m deposit expansion occurs with no currency leakages (that is, currency held by the public remains equal to $180 billion). billion Total Checkable Deposits can increase by a maximum of $ for all banks combined) assuming that each bank is "fully loaned up" or holding zero excess reserves. 6. The new amount of Checkable Deposits is $ billion 7. The new value for M1 is$ billion Fill in the t-account for the banking system showing Total Bank Reserves, Total Checkable Deposits, and the value of loans held by all banks combined, assuming maximum deposit expansion has occurred as calculated above Assets (billions) for all banks Liabilities (billions) for all banks Total Bank Reserves = 8, ! Checkable Deposits = 10.- Loans Chapter 10 Assignments 210

Explanation / Answer

5. Maximum checkable deposit creation (D) = excess reserves (E) X monetary multiplier (m)

=678.75*4 =2715 billion

6. The new amount of Checkable deposits = 2715+720=3435 billion

7. The new value of M1 = 3435+180=$3615 billion

8. Total bank reserves = 0.25* 3435 = $858.75 billion

9. Loans = 3435-858.75 = 2576.3 billion

10. Checkable deposits = 3435 billion

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